Unstructured Finance

Another black eye for Bruce Berkowitz

By Katya Wachtel

This year has been cruel to many money managers, and one stock-picker giving John Paulson a run for his money as the worst performing manager of 2011, is Fairholme Capital Management’s Bruce Berkowitz.

Berkowitz’s flagship Fairholme Fund has suffered huge losses on AIG, The St. Joe Company, Bank of America and Regions Financial. His bet on Sears can now be added to that laundry list of losers.

Today the struggling retailer announced plans to close up to 120 stores, the share-price tanked, and as one of Sears’ largest shareholders, Berkowitz is likely nursing some ugly wounds.

At September 30, Fairholme owned about 16.3 million shares of Sears common stock. That stake is worth about $570 million today, which amounts to potential losses of almost $180 million since the end of the third quarter, when the holding was worth about $746 million.

The retailer was Berkowitz’s third largest holding at the end of Q3.

Fairholme Capital Management’s $8 billion flagship portfolio has been one of the top performing U.S. mutual funds over the past decade, but unfortunately for Berkowitz, the Sears story does not represent an anomaly this year. The Fairholme fund has shed about 30 percent this year.

2011 has been cruel to many money managers. One stock-picker giving John Paulson a run for his money as the worst performing manager of 2011, is Fairholme Capital Management's Bruce Berkowitz. Join Discussion

John Paulson’s lost advantage

By Matthew Goldstein

Hedge fund titan John Paulson has a shrinkage problem.

The billionaire manager’s flagship Paulson Advantage funds are quickly losing altitude after peaking with $19.1 billion in assets under management in March. As of the other day, the combined AUM of the Paulson Advantage and Advantage Plus funds had fallen to $15.7 billion, according to investor sources.

The Advantage funds account for roughly 44 percent of the $35. 2 billon in assets under management at Paulson. The two so-called event driven funds  long have been the manager’s largest.

And the July performance numbers for the Advantage funds should be ugly. A source tells us the Advantage Plus fund, which is a leveraged version of the plain vanilla flagship fund, was down 4.63 percent in July. With that decline, the Advantage Plus fund is down a little over 21.6 percent for the year. The plain vanilla Advantage fund is believed to be down around 15 percent for the year.

The rapid shrinkage of the Advantage funds is largely the result of a series of bad bets and missteps by a trader who has taken on almost God-like status in the $2 trillion hedge fund industry. A good chunk of the $3.4 billion decline in AUM is due to the $482 million loss the Advantage funds incurred when Paulson unloaded shares of Sino- Forest–a Chinese forestry company accused of overstating its timber production and results. His big bets on financial stocks like Bank of America, Citigroup and CIT Group also are causing havoc for his portfolio.

Right now investors are putting in redemption notices to pull money out of the Advantage funds at the end of September. It’s not clear yet how much money investors will seek to redeem, but that no doubt could further impact the size of the flagship funds.

Hedge fund titan John Paulson has a shrinkage problem. The billionaire manager's flagship Paulson Advantage funds are quickly losing altitude. Join Discussion

COMMENT

Investors lost more on Paulson’s “Salary” than they lost on the recent downgrade. He should give it back – and do something for the benefit of his country, his neighbors and his fellow man.

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John Paulson and his god-like status

By Matthew Goldstein

By most objective measures, hedge fund magnate John Paulson isn’t having a particularly good year.

His Paulson Advantage Plus fund lost nearly 6 percent in May. His Paulson & Co. fund empire is believed to have absorbed a $300 million paper loss when shares of Sino-Forest got hammered in the wake of a critical report from a noted short-seller, who claims the company has overstated the value of its lumber holdings. And the bullish bet he’s made on a rebound in the housing market appears to be several years too early.

Then again, this is John Paulson–the mastermind of the mega subprime housing bet, which bolted him to fame and riches and certified his rock star status in the $2 trillion hedge fund industry. Today, his New York firm controls about $37 billion in assets and seems to keep taking in new investor money every day.

So even though his $9 billion Paulson Advantage Plus is in the red this year–other Paulson funds are doing quite well. For instance, Paulson’s Enhanced fund is up 11.5 percent for the year.

The big question is:  Will Paulson’s reputation in the industry will be enough to overcome the mixed the performance of his fund’s at the half-way mark?

Lesser-known managers with this kind of mixed performance might expect to be hit with some redemption notices as June comes to an end. But the feeling of many in the hedge fund industry is that is unlikely in the case of Paulson.

By most objective measures, hedge fund magnate John Paulson isn't having a particularly good year. Join Discussion

COMMENT

The guy swings for the cheap seats… when you swing like that and miss, you end up striking out! Not that I have tens of millions dollars, but I wouldn’t put a dime in his fund. I know it’s not sexy, but I’d say in aggregate that no fund guys or arbs have done better than Berkshire – slow and steady wins the race but it doesn’t get management fees

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